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Stocks of Retailers Surge on Consumer Optimism

After a report showing increased consumer confidence, stocks in the U.S. rose following several days of declines. At the New York Stock Exchange on Tuesday, Glenn Pohs worked on the exchanges options floor.Credit
Daniel Acker/Bloomberg News

Consumers in the United States are feeling more optimistic, and on Tuesday, so were investors.

After several days of declines on concerns about the government’s borrowing needs and the soundness of the dollar, stock markets rebounded Tuesday on a surprising bounce in consumer confidence. The private Conference Board reported that consumer sentiment rose again in May, hitting its highest levels in eight months.

As traders returned to Wall Street after the holiday weekend, the glints of good news in those numbers were enough to outweigh other figures showing that housing prices continued to tumble as fast as ever. Every sector of the Standard & Poor’s 500-stock index was higher, led by financial stocks and consumer-geared companies like McDonald’s, the Home Depot and Lowe’s home improvement chains, and the Walt Disney Company.

The Dow Jones industrial average was up 196.17 points, or 2.37 percent, to 8,473.49, while the S.& P. 500 was 2.6 percent, or 23.33 points, higher at 910.33.

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Shoppers in the Michigan Avenue shopping district of Chicago on Tuesday. Some retailers say that sales declines are abating.Credit
Scott Olson/Getty Images

The technology-focused Nasdaq outpaced other indexes, rising 3.5 percent, or 58.42 points, to 1,750.43, on gains among computer makers, search engines and Internet firms as analysts upgraded Apple. Apple, the maker of iPhones and iPods, rose 6.8 percent to $130.78 a share.

Big banks like Goldman Sachs, Wells Fargo and JPMorgan Chase closed higher, bolstered by optimism that improving consumer sentiment could translate into stability for the financial system. Investors also edged back toward the dollar, a week after they pushed it to its lowest point in five months on concerns about inflation, the expanding supplies of new currency and big federal deficits. The dollar index, which measures the dollar’s performance against six major currencies, was up 0.1 percent.

The jump in consumer confidence also helped the oil markets, where prices settled 78 cents higher, to $62.45 a barrel.

To some economists, the new figures on consumer sentiment were another signal that the force of the recession was beginning to abate.

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Consumers, whose spending accounts for more than two-thirds of the economy, have been shedding their pessimism like heavy winter coats in the last few months as stocks have bounded higher and credit markets have stabilized. Consumer spending rose unexpectedly in the first quarter, at an annual rate of 2.2 percent, and some retailers have said their sales were no longer falling as sharply.

The Conference Board’s index of consumer confidence rose to 54.9 in May from 40.8 last month. Consumers said their current situation was just slightly better than a month ago, but their expectations shot up, to 72.3 from 51 in April.

Although consumers are still downbeat by historical standards, they are feeling better about the future than just a few months ago when the stock market was sliding toward 12-year lows and the banking system was teetering. Consumers now expect the job market, business conditions and their incomes will improve in the months ahead.

The more buoyant mood among consumers echoed recent surveys of home builders, manufacturers and service-sector businesses, which have reflected a retreat from historic levels of pessimism.

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“Anything that measures sentiment has improved,” an economist at Deutsche Bank, Joseph LaVorgna, said. “We’re not seeing it in the hard data, but seeing it in the sentiment. But you can’t spend confidence.”

And with unemployment projected to rise from 8.9 percent to as high as 10 percent over the next year, economists warn that consumers may lose that newfound optimism in the months ahead.

“There are still an extremely troubling amount of people out of work, and there’s nothing that matters more, economically, than employment,” said Richard Yamarone, director of economic research at Argus Research. “You may see numbers jump again, but its not going to translate into greater economic activity until you see the job situation improve.”

The Treasury’s 10-year note fell 25/32, to 96 15/32. The yield, which moves in the opposite direction from the price, rose to 3.55 percent, from 3.45 percent late Friday.

Following are the results of Tuesday’s Treasury auction of three- and six-month bills and two-year notes:

A version of this article appears in print on , on Page B3 of the New York edition with the headline: Stocks of Retailers Surge On Consumer Optimism. Order Reprints|Today's Paper|Subscribe